“[Since] last year, we are starting to see a pipeline of companies that are ready to receive Series A and Series B investments,” said Ayman Ismail, the founding director of AUC Venture Lab. He added that many of these are seven-digits deals.
New sectors for entrepreneurship
Ismail relates this development to the emergence of a new generation of savvy entrepreneurs and to the government’s relaxing of regulations, which has opened new sectors for entrepreneurship.
“The year 2021 started much stronger than 2020 because the average size of investments has become bigger,” he said. “Several more similar investments are expected to come in until the end of the year; big-size tickets for A and B series are expected to go to companies that are doing well.”
According to MAGNITT, with a total of 114 deals, Egyptian startups accounted for 22 percent of all 2020 deals closed in MENA. Series A and Series B+ funding rounds accounted for 10 percent of all venture transactions in Egypt in 2020, added MAGNITT.
“Over the last 12 months, most of the funds came from abroad,” said Khaled Ismail, founder and Managing Partner of Egypt’s HIM Angel. “We have no growth funds in Egypt. We have no funds that could allocate 10 or 20 million dollars to one company.”
Egyptian startups have already attracted funds such as Middle East Venture Partners, VNV Global Gulf Capital and Deco Capital. In May, Telda, a nascent fintech company, disclosed a $5 million funding round led by the prestigious Sequoia Capital, marking the first investment by the California-based venture capital in the MENA region.
“It is a vote of confidence in the Egyptian market and in its ability to grow,” said Ismail. “This will definitely encourage other investors to come to Egypt.”
In May, Homzmart, a furniture ecommerce marketplace, disclosed a $ 15 million Series A funding deal led by China-based MSA Capital and the Dubai-based Nuwa Capital.
“Like Americans, Asians too want to come to the region,” said Ismail, adding that major players now include Japanese, South Korean and Chinese investors and that more of them should be expected in the future.
Ismail related the growing appetite to invest in Egypt to three factors: first, the fact that Egypt was one of the very few economies around the world that did not shrink during the COVID-19 pandemic; second, a startup scene that is still young and full of opportunities; and finally, the announcement of Fawry as Egypt’s first unicorn in August 2020, which has encouraged more regional and international investors to come to Egypt and invest in fintech in particular.
Fintech is the flavour
Ismail said the fact that investors are most attracted to fintech and e-commerce businesses is borne out by recent deals, such as digital payment provider Paymob’s recent announcement that it has raised $18 million in a Series A investment round led by Global Ventures.
In 2019, the CBE unveiled a strategy that recognized fintech as a crucial pillar to promote financial inclusion and transform the country’s banking landscape. So far, the CBE has licensed at least 20 Fintech companies.
“We expect more fintech copycats until newcomers go bankrupt and realize that there is no more room for them,” he said.
The MAGNITT report also noted that e-commerce startup transactions increased by 64 percent YoY in 2020, raising $18 million, which was 127 percent more than 2019.
“There is little room for entrepreneurship in generic e-commerce. It is very difficult for anyone to compete against Amazon, Souq or Jumia,” said Ismail. “However, there are always opportunities in specialized e-commerce.”
Despite these positive developments, Ismail believes Egypt has yet to meet its real potential. “We have to look at things in relation to the size of the economy and the population and ask if this is what is expected from a country like Egypt,” he said. “We had one unicorn in 10 or 15 years. Is that proportionate to what we should be doing? Should we not be doing one unicorn every two years?”
But Ismail is optimistic about the trajectory of Egypt’s entrepreneurial ecosystem. “We can have our next unicorn before 2025,” he said. “We can even have more than one unicorn by then.”
(Reporting by Noha El Hennawy; editing by Seban Scaria)
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© ZAWYA 2021